Google just told advertisers that if they want to reach young people YouTube will need to take 24% of their TV budgets

YouTube held its annual advertising industry extravaganza in
London's Battersea Park last night.

It's a huge event, attended by around 1,000 people from the
advertising and media industry, in which the online video company
shows off its wares in the hope of securing major ad deals.

And it was full of pomp: The event was hosted by YouTube comedian
Grace Helbing, a dinner was cooked for the guests by YouTube food
stars Sorted Food, McBusted singer Tom Fletcher and his sister
Carrie performed a song about vlogging, DJ Robin Schulz played
his hit song, and the evening was capped off with a performance
from Rita Ora. One source told Business Insider YouTube-owner
Google had spent in the region of £1 million ($1.5 million) on
the event.

The message from YouTube was loud and clear: YouTube — not TV —
is where primetime entertainment lives.

Eileen Naughton, Google's UK and Ireland managing director,
hammered the point home with this stat:

"Advertisers reach their target audiences far more
efficiently by adding YouTube to their media plans ... especially
the hard to reach 16 to 34-year-olds where cost per reach point
is optimized when 24% of your TV budget is allocated to
YouTube."

Put simply, Google was telling advertisers to shift their TV
budgets to YouTube. And not just an experimental, small amount —
almost a quarter, if they are looking to reach the most popular
audience segment that advertisers target. It's also interesting
to note that Naughton was using the language of TV — "reach
point" — similar to how
Facebook recently shifted to offer "target rating point"
buying, mimicking the Gross Rating Points used by media
planners to plan TV campaigns.

Naughton later went on to quote Ipsos & GfK research,
commissioned by Google, which found that ads seen on YouTube and
TV are more effective than ads seen the same number of times on
TV alone.

Rita Ora performed at the
YouTube Brandcast event.Jon
Cartwright

Business Insider caught up with Naughton after the event to ask
about whether YouTube is setting itself up as a real competitor
to TV advertising.

"The fact is that YouTube is a mainstream platform for video
consumption. It's as effective as TV as a marketing platform, and
in certain cohorts, more effective. If you're going after young
16 to 24-year-olds, they are 100% on YouTube in this country and
98% have smartphones, so that's the kind of behavior we're seeing
— and it's actually across every demographic; the UK happens to
be a very video consumptive country," Naughton said. "Our
positioning is that YouTube has really become this fantastic
platform for distribution and one where you get real engagement,
particularly with ads. Four of the top 10 trending videos last
year were ads. That's telling you something."

Naughton spoke about buying YouTube ads with TV
commercials, but we asked: what about YouTube's effectiveness
versus TV?

She responded: "It depends on the audience. If you're looking to
specifically target 60[-year-old] plus men, then you'll probably
get a lot more reach on TV. But on a general basis, we're looking
at 24% of the TV budget if you want to reach a young cohort ...
it's about economies of reach. Sometimes the data regression will
show that for 65% of your audience, you should start layering in
online video. Sometimes it's 15% [of the TV budget.] But we are
very comfortable with somewhere about 24% [of your budget] to
reach that young audience. That's why I use TV language — a reach
point — because that's how planners think. But if you look at the
composition of a TV audience, you will always get diminishing
returns after a certain saturation. It's a curve. It's all math."

Naughton said advertising buyers are beginning to understand that
a video advertising plan should include a mix of online and TV.

"Our view is that we should get YouTube to be on every media
plan. It deserves to be, just on the basis of audience scale and
the degree of engagement and intimacy viewers have. You're really
close to your phone, so if you choose to engage with a YouTube
ad, that's all user choice. And we find that choice yields higher
engagement," Naughton added.

Indeed, the Brandcast events (there is also one each year in New
York) ape the annual TV "upfronts" in which broadcasters hold
flashy parties to show off their programming and ad formats.

But while Google has been talking for some time about how it sits
alongside TV, it still has some way to go before it replaces
traditional viewing.

People in the US watch TV in the traditional, "linear," scheduled
way for almost five hours every day, according to Nielsen.
Meanwhile, they use the internet (all of it, not just YouTube) on
a computer and smartphones for roughly half that time each day.

Nielsen
says people in the US watch linear TV for almost 5 hours every
day.The Nielsen
Company

And TV remains advertisers' biggest outlay. Global TV advertising
spend reached $230 billion last year, according to estimates by
the media agency Carat. Online video advertising spend in 2014
was just $11 billion, according to ZenithOptimedia. Video
advertising spend growing quickly — expected to experience a
compound annual growth rate of 29% between 2014 and 2017 — but
even then, at $23 billion, video ad spend will just be a tenth of
what TV ad spend is today.